How to tackle the competition for free

Two years ago we evaluated a medium sized financial technology software company with a view to investing. It was evident that they had way too many "products", which was actually causing them internal challenges.

Most had begun life as bespoke developments for customers but over which they had negotiated the right to commercialise. In many cases, little research or development effort had gone into the commercialisation of the products but because they had potential, so the company deemed them to be product offerings.

From a sales perspective, the sales effort was blunted by the confusion of what message to present to the customer - they simply had to many offerings and so weren't sure what to pitch with. Added to which, the "products" range spanned several market segments within financial services, so it diluted their "specialist" message - customers in each segment perceived them as being generalists!

But one product caught my eye and so I enquired how they were approaching selling it. Answer - they weren't trying really because the market had a dominant supplier. Leaving aside why they hadn't just dumped it then, I offered them an answer - give it away for free to everyone in the market. My rationale was a) they would probably get some consulting revenues from folks eg as per open source model b) you'll get noticed for disrupting the market, which may prompt other conversations c) the dominant supplier will suffer some pain and have to go on the defensive d) there was no downside to them because they were doing nothing with it anyway e) you can shape the agenda, even if only briefly.

For several reasons, the investment didn't proceed. And sadly, I don't think they proceeded with the advice either, because it just felt "too scary".

I was reminded of this when I read the story here on Blognation about a consortium's efforts to create "Open Social". Led by Google, it's an initiative to create an open set of APIs for application development for social networks. The throng includes Ning, LinkedIn and Plaxo.

At a stroke, the consortium are pitching an attractive alternative to developers who might be focussed on Facebook applications (dominant supplier) with the option that they could development applications that can be even more widely distributed over many networks. Moreover, by challenging the Facebook "walled garden", they are shifting the agenda and may disrupt the market with this moral high ground. Aside from distribution, it also shifts the balance of power back towards the developer - with Facebook, they could just shut you out or copy you at any point.

At the same time, with other social networks such as Bebo playing catch up and racing to try to offer their own platform to developers, this provides a "higher ground" response than simply one of "me too". For some, they may feel themselves already too far along the proprietary route, but I'd suggest better to delay and hop aboard this train given the greater abundance of developers likely to convert to this model.

As for Facebook, they have an interesting choice - fall in line or tough it out based on their distribution offering and existing position.

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posted by John Wilson @ 8:37 AM Permanent Link newsvine reddit



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